Bets and bids: favorite-longshot bias and winner's curse

Jan Potters and Jorgen Wit
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Jorgen Wit: University of Amsterdam

Microeconomics from EconWPA

Abstract: A well-documented anomaly in racetrack betting is that the expected return per dollar bet on a horse increases with the probability of the horse winning. This socalled "favorite- longshot bias" is at odds with the presumptions of market efficiency. We offer a new solution to this much-debated puzzle which is related to another famous anomaly. We show that the bias can be explained by the same behavioral assumption that underlies the well-known "winner's curse" in common value auctions.

Keywords: parimutuel market; favorite-longshot bias (search for similar items in EconPapers)
JEL-codes: D1 D2 D3 D4 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-mic
Date: 1997-06-16
Note: Type of Document - WordPerfect; prepared on IBM PC; to print on HP Laserprinter 4; pages: 22 ; figures: included
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Related works:
Working Paper: Bets and bids: favorite-longshot bias and winner's curse (1996)
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Persistent link: http://EconPapers.repec.org/RePEc:wpa:wuwpmi:9706003

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